Last year your firm had revenue of $27.5 million, cost of goods sold (COGS) of $
ID: 2652135 • Letter: L
Question
Last year your firm had revenue of $27.5 million, cost of goods sold (COGS) of $14.0 million, Selling, General, & Administration costs (SG&A) of $2.5 million, Account Receivables (AR) of $8.5 million, Account Payables (AP) of $7.0 million and Inventory of $5.5 million. What will be the free cash flow this year if you boost revenue 3.5% and AR 14.5%, while holding COGS growth to 3.0% and everything else remains the same as last year? Assume no taxes and no new capital expenditures. You are encouraged to use a spreadsheet even for this specific type of question.
Explanation / Answer
New Revenue = 27.5*103.5% = 28.4625
Accounts Receivable= 8.5*114.5% = 9.7325
COGS+ 14*103% = 14.42
Profit= Rwvenue-COGS-SG&A
=28.4625-14.42-2.5 = $ 11.5425 Million
Change in working Capital= 9.7325-8.5 = $ 1.2325 million
Free Cash Flows= Profit- Change in net working Capital
= 11.5425-1.2325 = $10.31 MILLION
Free Cash Flows= $ 10310000
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